When you are trying to time the best entry point to borrow for your home, picking a time when interest rates are down will save you a lot of money. Those who think rates will increase want to buy now and take advantage of currently lower rates, and those who think they will decrease want to wait until a better time.

What determines interest rates depends on a lot of factors, so knowing what they are and how they behave can help you make a decision. Interest rates are actually the price of money, and just as the law of supply and demand dictates price, the law of supply and demand will influence the price of your mortgage: its interest rate.

The first factor to lood at in terms of interest rates is the inflation rate. And the inflation rate is influenced primarily by two factors. These include the producer price index as well as the consumer price index.

PPI is the fluctuation in prices at the stage where goods are produced. If PPI is rising, this will mean that the cost of finished goods is higher, which mean inflation.

The Consumer Price Index (CPI) measures changes in prices of a given ?market basket? of consumer goods. CPI is more well known to most people because it shows whether the prices we are paying are rising or falling, and by how much. Frequently, to remove some of the volatility of the CPI, analysts examine core inflation, which eliminates energy and food prices from the formula. This leaves what is considered the ?core? inflation rate which is a superior indicator of general prices and inflation.

GDP is the next typically used indicator of how inflation and therefore interest rates will act. The Fed (Federal Reserve Bank-the Central Bank of the United States) is responsible for maintaining the economy on an even keel-not a lot of growth, which will cause inflation and not too little, which may cause a recession. Central banks intervene in the money markets to control the supply of money to slow the economy down or speed the economy up.

The next most important interest rate indicator is the unemployment level. If the economy is experiencing low unemployment, inflation will most likely follow since salaries have to go up to bring in candidates. High unemployment will typically lead to lower interest rates since it means lower wages and consequently lower prices. In other words, increased wages lead to a wage price spiral and lower wages bring prices down.

The prospective home purchaser can help himself by keeping an eye on these indicators to attempt to determine rates. In general, a slowing economy, with high unemployment, means that interest rates will be coming down, and you should hold off on your loan for a while. On the other hand, higher GDP and decreasing unemployment will signal an increase in interest rates.

Related posts:

1. Canada Life Insurance Quote: To Wait or Not on Interest Rates
2. Buy a Home and Save Money with the Help of Mortgage Rates Calculators
3. Find Out The Truth About ARMs
4. Everything You Need To Know About Mortgage Interest Rates
5. Will the mortgage crisis get worse?

Tags: home, insurance, Life Insurance, mortgage, mortgage life insurance, Mortgages, real estate

This entry was posted on Tuesday, September 29th, 2009 at 6:52 am and is filed under Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.